LTA Issues Update: Antitrust, Tax, Legislative Developments

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1 Legal-Tax-Accounting Memorandum NATIONAL COUNCIL OF FARMER COOPERATIVES 50 F STREET, NW SUITE 900 WASHINGTON, DC fax LTA Memo August 7, 2009 LTA Issues Update: Antitrust, Tax, Legislative Developments It has been a busy spring and summer in Washington, DC. Following are updates on issues of importance to farmer cooperatives. Antitrust Renewed Enforcement Efforts. There is renewed interest in antitrust enforcement, both in Congress and in the Administration. The Department of Justice and USDA announced on August 5 that they will hold public workshops to explore competition issues affecting agriculture and the role for antitrust and regulatory enforcement. The first of the workshops will be held in early According to a Department of Justice press release, the workshops will "provide an opportunity for farmers, ranchers, consumer groups, processors, the agribusinesses, and other interested parties to provide examples of potentially anticompetitive conduct." DOJ and USDA are "interested in receiving comments on the application of antitrust laws to monopsony and vertical integration in the agricultural sector, including the scope, functionality and limits of current or potential rules." The full text of the announcement available at: NCFC will be developing a response and will look to the LTA Committee and the Antitrust Subcommittee for input. Other public statements by government officials indicate an interest in antitrust and agriculture. Christine Anne Varney, recently confirmed by the Senate as assistant attorney general in the Department of Justice s Antitrust Division, told Senators during her confirmation hearing that concentration in food and agriculture would become a priority under the Obama Administration. Varney, who served as Federal Trade Commissioner during the Clinton Administration, promised to scrutinize the antitrust decisions made by the Bush Administration, including examination of the increasing spread between depressed farm-level milk prices and retail prices. In a July 26 article, the New York Times noted: At the request of some lawmakers, notably Senator Bernard Sanders independent of Vermont, Ms. Varney is examining whether small agricultural operations are being hampered unfairly by large food processors, particularly in the milk industry, congressional aides said. Mushroom Litigation. In an ongoing class action lawsuit brought by direct purchasers of mushrooms, a federal district court judge ruled in March of this year that Eastern Mushroom Marketing Cooperative (EMMC) is not entitled to the Capper-Volstead antitrust immunity. Ruling on cross-motions for summary judgment, the judge determined that the cooperative s admission of a non-farmer member with voting rights destroyed its antitrust immunity. EMMC and its members have filed a notice of appeal in the Third Circuit. If the notice of appeal is denied, the case will be back in the District Court where several issues will be litigated, including:

2 whether a proper class has been certified; whether there was indeed a violation of the antitrust laws; and the amount of plaintiffs damages. NCFC filed an amicus brief in the EMMC case last summer. The brief focused on the correct interpretation of the Capper-Volstead Act s protections for farmer cooperatives. NCFC did not take a position on the underlying facts involved in the case, but instead addressed specific issues regarding the interpretation of the Capper-Volstead Act. The case is In Re: Mushroom Direct Purchaser Antitrust Litigation, Master File No , in the U.S. District Court for the Eastern District of Pennsylvania. (For more information and the full text of the decision, see LTA Memo , March 30, 2009.) Egg Litigation. In 2008, a group of direct purchasers of processed eggs filed a nationwide class action lawsuit against the producers of processed eggs, including at least one cooperative and three trade associations. The plaintiffs claim that since 2008 prices paid to direct purchasers for processed eggs were inflated due to a conspiracy among the producers to allocate customers and regional territories. The parties are currently waiting for the judge s ruling on a non-cash settlement involving one of the egg producers involved in the suit. The case is In re: Processed Egg Products Antitrust Litigation, Case No. 2:08-md GP, in the U.S. District Court for the Eastern District of Pennsylvania. Competition in Agriculture In February Senator Charles Grassley (R-Iowa) introduced legislation that would step up oversight of agricultural mergers. The bill, which has been referred to the Judiciary Committee, would: Establish a Deputy Assistant Attorney General for Agricultural Antitrust Matters in the Department of Justice Antitrust Division to coordinate agriculture-related antitrust and related matters, and would work with a newly established Task Force and the Department of Agriculture on all agricultural competition matters. Amend the Clayton Act to revise the defendant's burden of proof in agribusiness acquisitions. Direct the Justice Department and the Federal Trade Commission (FTC) to draft agriculturespecific guidelines to use when reviewing agriculture acquisitions, and to establish a process for reviews of such transactions five years after approval. Establish an Office of Competition and Fair Practices within the Department of Agriculture, headed by a Special Counsel for Competition Matters, to analyze acquisitions within the food and agricultural sectors and investigate and prosecute violations of the Packers and Stockyards Act. Provide for agribusiness acquisitions review and enforcement by the Department of Agriculture. Cooperatives are excluded from many provisions under the bill. A task force of LTA Committee members has reviewed the legislation and made recommendations. NCFC staff visited with Senator Grassley s judiciary committee staff and relayed NCFC s concerns; we will be following up with Senate staff. The bill has been referred to the Senate Judiciary Committee, but is not likely to receive further consideration before the fall. 2

3 Defined Benefit Pension Plan Funding Several NCFC members have expressed concerns regarding increased pension funding requirements due to the market downturn. As a result, NCFC has formed a pension working group to analyze the impact of recent market conditions on defined benefit plans sponsored by NCFC members and to develop and promote ideas for regulatory and/or legislative relief. Seventeen NCFC members have joined the effort. The working group developed and distributed a survey on pension funding obligations and the implications for NCFC members financial well-being. NCFC is using the results of the survey to educate members of Congress regarding the need for pension funding relief. Rep. Earl Pomeroy (D- ND), a member of both the Agriculture and Ways and Means Committees has circulated draft pension relief language and plans to introduce a bill in September; the bill will include relief for both singleemployer and multiple-employ plan, according to an aid to Rep. Pomeroy. NCFC is working to encourage support for the bill. Tax Several tax proposals are in the works, including: Climate Change. The Senate Finance Committee on August 4 held a hearing on climate change and the distribution of allowances and revenue. Sen. Grassley (R-Iowa), the committee s ranking member, noted that revenues from the sale of allowances represent a national energy tax. He urged the committee to find ways to mitigate the painful effects of the legislation on American taxpayers. Sen. Blanche Lincoln (D-AR) urged that a tax package be included in any climate change legislation and that it be used to incentivize renewable energy production. (See below for more on climate change legislation.) The LTA Committee will be exploring ways to ensure that cooperatives benefit from any tax incentives included in climate change legislation. H.R. 1158, the Biogas Production Incentive Act of The bill would provide a tax credit for the production, sale, or use of biogas. Biogas is defined as a gas that is derived by processing qualified energy feedstock (i.e., manure of agricultural livestock and other organic agricultural or food industry byproduct waste material) in an anaerobic digester and that contains at least 52% methane and carbon dioxide and trace gases. The bill would also provide an increased credit for biogas produced from qualified cellulosic energy feedstock. NCFC supports this legislation. S. 1461, tree and vine bonus depreciation. Recently introduced by Sen. Boxer (D-CA), the bill would extend bonus depreciation to tree, vine, and nut growers. The provision would apply only to property acquired before January 1, The bill was co-sponsored by Sen. Nelson of Florida, who sponsored similar language as a proposed amendment to the stimulus bill earlier this year. Rep. Mike Thompson (D-CA) introduced identical language in the House (H.R. 2739). NCFC supports this legislation. The LTA Tax Proposal Working Group is exploring several other tax proposals and will present their findings at the LTA Subcommittee Chair/Vice Chair meeting in September. The LTA Committee will also be considering opportunities for tax incentives for green energy initiatives. For more information on these issues, contact Marlis Carson, mcarson@ncfc.org. 3

4 Other issues NCFC staff members are working on many other issues of importance to farmer cooperatives. Information on these and other issues is available at Climate Change The U.S. House of Representatives recently passed legislation aimed at reducing greenhouse gas emissions, H.R. 2454, the American Clean Energy and Security Act of NCFC supported the inclusion of a sound agricultural offsets program, solely controlled by the U.S. Department of Agriculture, but did not endorse the bill. NCFC continues to have serious reservations about the impact that HR 2454 will have on the cost of production for farmer cooperatives and their producer members across the country. This is especially true of farmer cooperative-owned petroleum refineries, which supply nearly two-thirds of on-farm fuel, and of domestic fertilizer producers. Furthermore, U.S. agriculture s competitiveness in both domestic and export markets could be significantly damaged. In addition, we are concerned about the lack of certainty regarding the tax implications of a cap-and-trade system. NCFC is hosting a series of informational sessions on climate change for members of the agricultural community based in Washington, D.C. For more information, contact Lisa Kelley, lkelley@ncfc.org. Clean Water The 6th Circuit recently denied a request to review a January decision invalidating a rule exempting some pesticides from permitting requirements under the Clean Water Act. A coalition of twenty-two farm organizations, including NCFC, was seeking en banc review of the decision. NCFC maintains that without a new EPA rule, agriculture faces regulatory uncertainty regarding whether land-based pesticide applications would require a permit under the National Pollution Discharge Elimination System. In addition, farmers face potential liability under the Clean Water Act citizen-action provisions. The case is National Cotton Council of America, et al. v. EPA. The full text is available at For more information, contact Lisa Kelley, lkelley@ncfc.org. Food Safety The House passed H.R. 2749, the Food Safety Enhancement Act of 2009, on July 30. Issues of concern to farmer cooperatives include: Registration fee: The bill requires all facilities to register with the FDA annually. Associated with registration is a fee of $500 per domestic or foreign facility, not to exceed $175,000 per company per year. Hazard Analysis and Food Safety Plan: All facilities shall conduct hazard analysis and implement a food safety plan. Safety Standards for Raw Ag Commodities: The bill requires FDA to develop and implement regulations setting standards for safe growing, harvesting and holding (storage) of raw ag commodities if required to minimize the risk of "serious adverse health consequences or death to humans or animals." 4

5 FDA's Access to Records: The bill gives FDA access to facility records to certain higher-risk commodities (raw agricultural products), and only under reasonable circumstances in the case of a food borne illness outbreak. Recall and Quarantine Authority: The bill gives FDA mandatory recall authority. Also, FDA may prohibit or restrict the movement of food, only if the Secretary has credible evidence that an article of food presents an imminent threat. Product Traceability: While the requirement for a tracing program remains, the bill s traceability provisions have been improved to include a study of available technology, a pilot project, and an acknowledgement of pre-existing systems. Food sold directly from farms to retail or restaurants are exempt also grains are given special treatment in the bill (requiring grains to be traced from their initial warehouse). Jurisdictional Issues: The bill is clear that livestock and poultry, and other USDA-inspected facilities are exempt from the requirements of this bill, and will remain under USDA s jurisdiction. The Senate may take up the bill as soon as this fall. For more information, contact Stacey Satterlee, ssatterlee@ncfc.org. Immigration Senator Dianne Feinstein (D-CA) and Congressmen Howard Berman (D-CA) and Adam Putnam (R- CA) recently reintroduced the Agricultural Job Opportunities, Benefits and Security Act of 2009, S. 1038, H.R. 2414, known as AgJOBS. Similar to years past, AgJOBS restructures and reforms the current H-2A temporary agricultural worker program. AgJOBS also allows aliens who can demonstrate a substantial commitment to agricultural work in the United States through work experience obtained prior to introduction of the legislation to earn legal status in order to remain working in agriculture. This provision allows agricultural employers to retain a legal and experienced workforce while they anticipate and prepare for future participation in the reformed H-2A program. NCFC supports passage of AgJOBS. For more information, contact Stacey Satterlee, ssatterlee@ncfc.org. Card Check NCFC is opposed to the Employee Free Choice Act (EFCA), also known as card check, because it would strip American workers, including many workers in the agricultural industry, of the right to a secret ballot and replace it with a system in which their choice of whether or not to join a union is no longer private. The Employee Free Choice Act has been re-introduced in the 111 th Congress and remains a top priority for labor unions. For more information on this issue, contact NCFC staff Stacey Satterlee at ssatterlee@ncfc.org. Transportation The Safe, Accountable, Flexible, Efficient Transportation Equity Act A Legacy for Users (SAFETEA-LU), P.L , is set to expire on September 30, The Surface Transportation Authorization Act of 2009 is moving through the House Transportation and Infrastructure Committee this summer. However, issues over how to pay for the $500 billion six-year plan, other legislative priorities in the Senate, and competing ideas from the Obama administration, will postpone the chance at any long-term highway bill this year. In fact, three Senate committees with claims to transportation legislation -- the Senate Banking, Housing and Urban Affairs Committee, Environment and Public 5

6 Works, and Commerce, Science and Transportation panel -- have already cleared an 18-month extension of the portions of the authorization under their jurisdiction. Meanwhile, legislation is being drafted by the Senate Committee on Commerce, Science and Transportation that would address concerns of rail shippers. It is expected that work will continue at the staff level over the August break with legislation likely being introduced in September. But given limited time and Congress addressing other priorities, it is unclear whether the comprehensive rail legislation focused on reforming the Surface Transportation Board will be considered by the full Senate this year. For more information, contact Kevin Natz, CFTC Regulatory Reform House Financial Services Committee Chairman Barney Frank (D-MA) and House Agriculture Committee Chairman Collin Peterson (D-MN) recently released a concept paper that will serve to guide the two committees as they develop legislation to regulate derivatives. The House included provisions regarding changes to Commodity Exchange Act in the climate bill it passed in June. However, that move was largely intended as being a place marker for other legislation being considered by the House Agriculture and Financial Services Committees. Chairman Peterson has indicated that his committee will address OTC derivatives reform when they reconvene in September. Senate Agriculture Chairman Harkin (D-IA) has repeatedly stated that regulatory reform must be addressed by the Senate this year and that he plans to tackle the issue in the fall. Sen. Harkin s current position is to require all derivatives trading to take place on regulated exchanges with full reporting. For more information, contact Kevin Natz, knatz@ncfc.org. 6